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Iran sanctions and compliance challenges going forward

On April 2, 2015, Iran and the five permanent members of the United Nations Security Council (plus Germany) announced a Joint Comprehensive Plan of Action (JCPOA) providing a framework for a final agreement to curb Iran’s nuclear program and provide Iran relief from nuclear-related sanctions. The parties intend to reach the final agreement by June 30, 2015. The JCPOA anticipates that the final agreement will last for up to 25 years and will include stringent international inspections of Iran’s centrifuges and nuclear storage facilities.

The Agreement Framework and Continued Enforcement of U.S. Sanctions

The April 2, 2015 JCPOA is a framework of understanding, not an agreement. It does not relieve, suspend, or terminate any U.S. sanctions against Iran. Most U.S. sanctions are not “nuclear-related.” They are in place due to proliferation of other (conventional) weapons systems, human rights and terrorism concerns. This means that these U.S. sanctions that prohibit the export of goods or services from the U.S. will remain in place and will continue to be enforced against U.S. persons and companies, as well as the foreign companies they own or control.

The JCPOA follows another multilateral agreement with Iran, the Joint Plan of Action (JPOA), reached on November 24, 2013. Under this agreement, the U.S. had suspended certain U.S. sanctions designation criteria (also called “secondary sanctions”) that otherwise might have resulted in non-U.S. banks and companies being sanctioned by the U.S. for lawful trade with Iran. U.S. persons and companies, as well as the foreign companies they own or control, were unaffected by this suspension.

This suspension allowed non-U.S. companies to engage in trade with Iran without risk of sanction by the United States. The areas of commerce included in this relief were:

Trade in goods or technologies subject to U.S. export controls and transactions in U.S. dollars remained restricted. Enforcement has continued, with the U.S. government imposing more than $450 million in penalties for violations of the Iranian sanctions during this period.

Looking Ahead – A Probable Bisected Compliance Challenge for U.S. and Non-U.S. Companies

The nature of the negotiations, domestic and international politics, and other factors make difficult any reasonable prediction as to the shape of future of U.S. sanctions. Given the history of U.S. sanctions that the landscape will likely be divided between U.S. sanctions (impacting U.S. persons, companies, banks, U.S. controlled entities and subsidiaries) and other multi-lateral controls, such of those of the European Union, that will allow trade with Iran.

In all probability, it appears that on the U.S. side, the situation will be: (1) the U.S. will continue its trade embargo on Iran; (2) there will be generally no lawful U.S. exports of goods or services to or imports from Iran; and (3) Iranian banks will continue to be blocked and will not be able to use the U.S. banking system.

This means that U.S. and non-U.S. companies that trade technologies or goods subject to U.S. export controls or rely on the U.S. banking system (for example, by use of electronic transfers denominated in U.S. dollars) will need to have compliance controls that address these continued U.S. restrictions. U.S. and non-U.S. companies also will have to maintain controls that prevent officials or other personnel who are U.S. persons from facilitating or approving trade with Iran.

For non-U.S. companies, the risks are likely to be immediate. Trade with Iran using dollars or involving technologies or goods subject to U.S. export controls will create potential liabilities and could result in severe penalties. Technologies or goods subject to U.S. export controls can include non-U.S. made items that contain 10 % or more U.S. content. Those non-U.S. items are often not easily identifiable in a supply chain or sales channel.

It is probable that Europe and Asia will have open trade with Iran that will be unimpeded by U.S. sanctions, except where that trade intersects with the U.S. market as noted above. To make this possible without contravening criteria for sanctions under U.S. law, the U.S. President and the U.S. Department of the Treasury probably will issue waivers, policy statements and/or guidance to assure foreign companies that their trade with Iran will not result in their being barred from the U.S. market or the severance of their U.S. correspondent banking accounts – as long as the companies otherwise comply with applicable U.S. trade restrictions. These actions by the President and Treasury appear to be within the President’s discretionary authority.

An additional important caution, however, is that the U.S. will continue to sanction companies that trade with the multitude of Iranian entities designated by the U.S. government because of their ties to terrorism, human rights abuses, and the proliferation of conventional weapons. Penalties could include exclusion from the U.S. market and a freezing of any assets in the United States.

U.S. companies that operate internationally as well as non-U.S. companies in the European Union and elsewhere, therefore, should enhance their sanctions compliance programs in anticipation that either they or a business partner will be reentering the Iranian market. Focus should be on the identification and management of goods or technologies subject to U.S. export controls, as well as the impact of the probable continuation of restrictions on use of U.S. dollars in Iranian commerce.

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